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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-23489
ACCESS WORLDWIDE COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1309227
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4950 Communication Avenue, Suite 300
Boca Raton, Florida 33431
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (561) 226-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class. Name of each exchange on which registered.
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None. None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 30, 2001 was approximately $6,087,501.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of March 30, 2001 was 9,740,001 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's Proxy
Statement to be filed with respect to the 2001 Annual Meeting of Stockholders
scheduled to be held on or about June 20, 2001 and to be filed no later than
April 30, 2001.
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TABLE OF CONTENTS
Part I
Item 1. Business............................................................................. 1
Item 2. Properties........................................................................... 16
Item 3. Legal Proceedings.................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders.................................. 17
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................ 17
Item 6. Selected Financial Data.............................................................. 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 25
Item 8. Financial Statements and Supplementary Data.......................................... 25
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures 49
Part III
Item 10. Directors and Executive Officers of the Registrant................................... 49
Item 11. Executive Compensation............................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 49
Item 13. Certain Relationships and Related Transactions....................................... 49
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................... 49
Index to Exhibits.................................................................... 50
Signatures........................................................................... 55
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PART I
Item 1. Business
General
Founded in 1983, Access Worldwide Communications, Inc. ("Access Worldwide"
or the "Company") is headquartered in Boca Raton, Florida and has over 1,300
employees in several offices throughout the United States. The Company's stock
currently trades on the Nasdaq SmallCap Market under the stock symbol "AWWC."
Access Worldwide provides sales, marketing, Internet and medical education
services to more than 100 clients in the pharmaceutical, telecommunications,
insurance, financial services and consumer products industries.
The Company provides differentiated value-added services that help its
clients attract new customers, protect existing customer relationships and
increase the lifetime value of customer relationships. The Company believes
that its ability to provide both strategic and tactical solutions, supported by
systems and technology, differentiates itself in the highly fragmented
marketing services industry.
The Company is comprised of two material strategic business units and one
other business unit that offers different products and services to industries
throughout the United States. Those business units are as follows:
. Pharmaceutical Marketing Services ("Pharmaceutical"), consisting of the
AM Medica Communications Group, TMS Professional Markets Group
(pharmaceutical division), and Phoenix Marketing Group, that provide
outsourced services, including medical education, medical publishing,
pharmaceutical sample and literature fulfillment and database
management, to the pharmaceutical and medical industries.
. Consumer and Business Services ("Consumer"), consisting of the TelAc
Teleservices Group and TMS Professional Markets Group
(business-to-business division), that provide consumer and multilingual
telemarketing services to the telecommunications and financial services
industries.
. Strategic Research Services, consisting of the Cultural Access Group,
that provides quantitative and qualitative market research to various
clients worldwide.
Industry Overview
Access Worldwide operates in the outsourced marketing services industry that
includes outsourced marketing companies, advertising agencies and in-house
marketing, research and sales departments that provide pharmaceutical or
multicultural marketing services.
Access Worldwide believes there are significant barriers to becoming an
outsourced marketing services company with national capabilities that are in
compliance with state and federal regulations. Some of these barriers include
the development of a broad range of marketing knowledge and expertise, the
infrastructure and experience necessary to serve the demands of clients, the
ability to simultaneously manage complex marketing programs in multiple states
or countries, the development and maintenance of complex information technology
systems, the establishment of solid working relationships with repeat clients,
a strong history of financial performance, and capital funding to finance
growth.
Several trends are changing the dynamics of the outsourced marketing
industry, including the following:
Growth in Outsourcing. The broad acceptance of outsourcing within corporate
America is resulting in increased outsourcing of marketing, sales and customer
service functions.
Growth in Pharmaceutical Marketing Spending. The pharmaceutical industry's
expenditures on programs that promote, market and sell its products through
direct channels have grown in recent years.
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Growth in Demand for Integrated Service Offerings. Increasingly, companies
are turning to large marketing and communications organizations to provide
integrated services across multiple disciplines. These integrated services
ensure a consistent presence which maximize the effectiveness of their
messages, and better coordinate their marketing activities.
Growth in Ethnic Populations. According to the U.S. Census Bureau, the
multicultural population in the United States has grown as much as four times
faster than the general population's growth.
Growth in Accountability of Marketing and Sales Activities. There is
increasing pressure within corporate America to demonstrate a measurable return
on marketing and sales investments.
Growth in Customer-Focused Management Practices. There is increasing
recognition of the fundamental need to "speak the language" of the customer as
a means of improving customer retention rates.
The Company cannot assure stockholders that any of these trends will
continue or that even if they do continue such trends will benefit the
Company's business in the future.
Pharmaceutical Marketing Services
Access Worldwide's broad scope of services and capabilities enable it to
influence physicians, inform pharmacists, involve patients and impact sales by
educating each audience on new drug launches, medical devices and procedures,
and prescribing indications. Specific services are described below.
Medical Education Programs: Access Worldwide's AM Medica Communications
Group is a leading medical communications company, working with pharmaceutical
clients to educate healthcare practitioners about drugs, devices and
procedures. The Company delivers medical education services in the following
formats: scientific symposia, interactive workshops, university programs,
fellows programs, investigator/research meetings, roundtables, advisory board
meetings and sales training programs. In the last 14 years, Access Worldwide
has organized more than 1,500 domestic and international medical meetings of
all sizes and offers a wide range of pre-program, onsite and post-program
services.
Approximately 100 meetings are conducted by Access Worldwide each year in
the United States, Europe, Asia, Africa and Australia. The Company's
experienced team works with some of the medical industry's most prominent
associations including the American Academy of Family Physicians, American
Heart Association and the National Medical Association. Many of the 1,500
meetings that the Company has organized or overseen have been satellite
programs held in conjunction with these organizations.
In addition to meeting planning services, Access Worldwide provides
editorial support by assigning editors to work closely with program faculty and
clients in the planning and execution of program content. The Company's goals
are to develop effective and valuable scientific programs while providing
support for faculty in their research and presentation development.
Medical Publishing: Produced publications are an established form of medical
communications and one that Access Worldwide's clients often request. The
Company offers a range of services that include: development of manuscripts,
consultation with guest authors, copy editing and proofreading, design, layout
and production, printing and custom mail programs. If a client so requests, the
end result can be an original paper for journal publications, newsletters and
sales training programs.
The Company has published original articles and supplements with leading
journals such as the American Journal of Cardiology, Journal of the American
Association of Physician Assistants and The Consultant Pharmacist.
Medical Audiovisual Programs: The Company offers film, slide and video
programs that are uniquely suited to many kinds of product messages. Clients
utilize Access Worldwide's audiovisual services to produce
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slide/lecture programs, videotapes, audiotapes and teleconferences. Upon
request, the Company can provide to its clients scripting, casting, animation
and pre-/post-production services.
Nation's Largest Outsourced Sample Fulfillment Center: Access Worldwide
ships millions of drug and literature samples a year. The Company increased its
sample fulfillment capabilities in 2000, with the addition of a new 112,500
square foot fulfillment facility. The site was officially opened in November
2000 and increased the Company's total available warehouse space to more than
200,000 square feet.
From the Company's sample fulfillment centers, Access Worldwide distributes
drugs and product literature by mail to medical personnel on behalf of
pharmaceutical companies. The Company's single-loop system validates all
requests for drugs using state licenses, American Medical Association and Drug
Enforcement Administration databases. Valid shipping manifests and labels are
generated as the Company picks, packs and ships samples to targeted medical
practitioners. Follow-up letters are produced, driven by an automatic reject
system. The system processes and stores acknowledgements of delivery, closing
the sample fulfillment loop. Returned products are quarantined and processed
for destruction. A destruction acknowledgement closes the returned goods loop.
In 2000, shipments increased, with 74 million sample units being sent. The
Company more than doubled the previous record of 31 million sample units sent
during 1999.
Seven-Million Record Medical Database: Access Worldwide has one of the
nation's largest medical databases. The Company is one of ten that have a
licensing agreement with the American Medical Association, gaining access to
the association's master database of physicians. In addition, the Company has
comprehensive files on the nation's independent retail and non-warehousing
chain pharmacies. Using proprietary files, state licenses files and Drug
Enforcement Administration files, the database has more than seven million
records that are used to improve the performance of pharmaceutical sales
forces.
In 2000, this database was expanded substantially with the introduction of
physician prescribing data. More than 450 million prescriptions are written
each quarter and Access Worldwide can now segment physicians based on their
index of prescribing activity per individual product or across therapeutic
classes. This data is used on behalf of pharmaceutical clients to perform
direct mail services, detailing or educational programs and sample and
literature fulfillment. The following is a description of various sources of
information included in the database and the number of records in each segment.
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Approximate
Number of
Database Description Records
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American Medical Access Worldwide is one of 10 companies with access to the American 863,502
Association Medical Association's master database of all U.S. physicians.
("AMA") Physicians
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AMA Geo This database segments physicians based on their location. 2,600
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AMA Groups This database includes information on medical group affiliations. 25,000
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AMA Hospitals This database includes information on hospital affiliations. 7,806
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AMA Students Each medical student is given an identification number, similar to a 70,564
social security number, that follows that student from the first day at
medical school until the end of that student's career.
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American Osteopathic Through an agreement with the American Osteopathic Association, 54,901
Association Physicians Access Worldwide has access to information in that organization's
database.
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Drug Enforcement This DEA database includes information on active practitioners that 1,099,722
Administration have DEA certificates for drug dispensing.
("DEA") Practitioners
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DEA Dentists This DEA database includes information on dentists with certificates to 151,900
dispense drugs.
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DEA Miscellaneous This DEA database includes information on active business units 86,677
having DEA certificates for drug dispensing.
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DEA Pharmacies This DEA database includes information on pharmacies with 56,600
certificates to dispense drugs.
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Licensed Practitioners This database includes all of the current state license files of seven 1,970,100
practitioner types used to verify information from other databases, such
as the AMA. It includes doctors that have multiple licenses in more
than one state.
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NDC Power Profiler This database provides access to data on more than 850,000 AMA 850,000
prescribers and 450 million prescription transactions.
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Nurse Practitioners This database includes information on nurse practitioners provided on 105,496
the Licensed Practitioners database.
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Sanctions This database is compiled from sanction paperwork provided by the 55,315
State License Boards.
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Universal This database contains Medicare and Medicaid provider information. 774,655
Practitioners
Identification
Number (UPIN)
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Yellow Pages Physicians are listed in 55 state and nationwide yellow and white pages. 443,964
Physicians These listings are incorporated into a database that is updated with
National Change of Address information on a continuing basis.
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Yellow Pages This database includes physicians segmented by their group affiliations. 95,662
Physician Groups
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Zip Master This database contains information on all zip codes and their affiliated 43,800
state, county and city codes provided by the U.S. Postal Service.
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High-Quality Physician & Pharmacist Programs: Access Worldwide delivers
integrated sales and marketing programs that reach physicians, pharmacists,
wholesalers, hospitals and patients, including physician and pharmacy
telemarketing, sales territory management, and product stocking programs. The
Company communicates with an average of 5,000 physicians and 15,000 pharmacists
each week.
Physician Product Detailing: With highly trained employees, Access Worldwide
provides product detailing programs that target physician prescribing habits.
Key program components include highly specialized, professional product
detailing presentations, clinical information and literature delivery, and
client reporting.
Pharmacy Product Detailing: Access Worldwide plays a role in informing
pharmacists on new products and new indications for existing products. The
Company's pharmacy programs reach non-warehousing chain pharmacies, as well as
regional chains, hospitals, nursing home providers and independent retail
pharmacies. The Company's comprehensive autoship and autocheck program can
often reach and secure distribution to two-to-four times more pharmacies than
traditional wholesaler programs.
Pharmacy Stocking: During 2000, Access Worldwide unveiled INSTOCK/SM/, an
expanded pharmacy stocking program that targets the 20,000 independent
pharmacies located nationwide. The new service addresses what the Company's
management believes is a need within the industry to reach pharmacists at
non-chain locations during the launch phase of new products. Independent
pharmacies account for 30% of the pharmaceutical market that is often untapped
by traditional stocking programs.
The INSTOCK program begins with pharmaceutical databases that are updated
daily. With the contact information, telemedical specialists call independent
pharmacists to present and explain a client's new product, new indication, or
product line extension. Incentives for immediately stocking the product are
communicated and orders are taken. These orders are processed through the
retailer's regional wholesaler. The stocking incentives consist mainly of
rebate checks.
Through relationships with wholesale distribution centers throughout the
United States and Puerto Rico, the Company has the ability to confirm that
orders are fulfilled within 15 to 20 business days.
Direct Mail & Direct Marketing Programs: Utilizing the Company's medical
databases, Access Worldwide provides personalized mail and direct mail
capabilities. The Company's targeted database technology allows clients to send
personalized messages to targeted professionals automatically, such as
follow-up letters, and birthday or holiday greetings. Pharmaceutical sales
representatives can pick-a-paragraph and assign a digital signature with Access
Worldwide's technology, so customized letters can be sent from the field, often
within 48 hours.
In addition, Access Worldwide has exclusive rights to market and distribute
National Football League-branded and Professional Golf Association
("PGA")-branded single-source direct marketing publications to healthcare
telecommunications and insurance audiences. Through a contractual arrangement
with J. Patton Sports Marketing, Inc. in Atlanta, Georgia, Access Worldwide has
created AccessSports/SM/, an extensive line of sport-related marketing
activities targeted to members of the healthcare, insurance and
telecommunications industries. Through Access Sports/SM/, Access Worldwide
creates customized, interactive marketing campaigns that include information on
sporting events from the National Football League, PGA TOUR and 171
universities, along with material on the client's product or service.
Sales Force Productivity Systems: Access Worldwide works to improve the
efficiency of clients' sales forces by providing them with a variety of
outsourced sales services as well as an integrated technological infrastructure
and support system designed to maximize sales force productivity in the field.
The Company's Electronic Territory Management System ("ETMS") allows
geographically dispersed pharmaceutical sales forces to track and report their
efforts in the field to their main offices. The ETMS is integrated into the
Company's product sampling and fulfillment systems, physician database
management systems and direct mail systems.
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These automated systems typically require Access Worldwide to be integrated
into the systems and sales force management structure of the client's
organization. The Company believes that this integration discourages clients
from switching to other providers of the Company's services.
Patient Customer Service & Support: With extensive teleservices
capabilities, Access Worldwide supports patient information services at its
Florida communications center. The Company provides information on behalf of
pharmaceutical clients to patients and their families who are enrolled in
caregiver support programs. The Company is also experienced in medical device
replacement programs.
Consumer and Business Services
Access Worldwide delivers innovative marketing programs, systems and
technologies in the business to consumer and business to business services
arena including marketing telecommunications services on behalf of various
providers, which are aimed at enabling the Company's clients to access new
markets, acquire new customers and activate existing customers. Specific
services include the following:
Multicultural, Multilingual Marketing Capabilities: Access Worldwide can
reach the growing multicultural markets in the United States with the Company's
900+ multilingual customer service and telesales professionals in three
customer communications centers. The Company uses Hispanic and Asian
multilingual software, translated into 15 languages, to access up to 50,000
multilingual households daily. The Company's multicultural and multilingual
staff can execute consumer services programs in languages, including Arabic,
Cantonese, French, German, Hindi, Japanese, Khmer, Korean, Mandarin,
Portuguese, Russian, Spanish, Tagalog, Urdu and Vietnamese.
The Company offers customer services to retain existing client's customers,
win-back programs to reestablish relationships with client's former customers
and acquisition campaigns to attract prospective new customers.
Access Worldwide works to offer each client a comprehensive teleservices
campaign that can include the following elements:
Script Design. One of the first elements of a successful campaign is the
creation of a script. Access Worldwide has written more than a hundred scripts
that aid teleservices representatives in the successful communication of a
client's key program benefits.
Teleservices Representative Training. With experienced human resources,
training and recruitment departments, Access Worldwide educates and trains
representatives to handle a wide variety of customer inquiries, comments and
complaints, ranging from billing disputes to change of addresses.
Database Management. Access Worldwide has significant expertise in
collecting, analyzing, organizing and communicating data. The Company has
proprietary Hispanic and Asian surname software that its customers use to
analyze their current and prospective customer files.
Lead Qualification. Using the Company's databases, Access Worldwide can
perform lead qualification services, ensuring the creation of a calling list
that includes updated information and viable prospects.
Campaign Feedback. Depending on client needs, Access Worldwide can report
campaign results on an hourly or daily basis or with offsite audible
monitoring. The Company can provide complete customization for file
transmission in batch or real time reporting mode.
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Strategic Research Services
Access Worldwide provides in-language, in-culture market research services
and consulting services to Fortune 500 companies in a variety of industries.
The Company's research services encompass market area profiles, target audience
segmentation, marketing and advertising effectiveness, culture market
opportunity assessment, new product concepting and testing, awareness, attitude
and usage studies, opinion polling, readership and viewership studies, and
customer satisfaction surveys.
These research and consulting services have assisted clients with the
following objectives:
. Identifying and developing clear profiles of key multicultural segments.
. Identifying segments of the multicultural community that present the
best opportunity for new products or services.
. Measuring image and awareness levels of client brands and those of key
competitors.
. Assessing the impact of acculturation on purchasing behavior and
marketing strategies.
. Measuring the effectiveness of advertising and communications campaigns.
. Developing positioning statements and creative materials for
motivational content and appeal.
Company Growth Strategy
The Company's growth strategy includes the following elements:
Exploit Niche Market Opportunities. In each niche that it pursues, the
Company's goal is to build and maintain a leading position as a specialized
outsourced marketing services provider. The Company focuses its outsourced
marketing efforts on physicians, pharmacists, patients and multicultural
markets. Through its experience, technology and management systems, the Company
has demonstrated its effectiveness in communicating its clients' products and
services to complex and hard-to-reach targeted audiences.
Drive Internal Growth. The Company plans to grow internally by further
penetrating existing client relationships, establishing new client
relationships and introducing new service offerings. The Company is committed
to a formal and systematic approach to business development. The Company has
achieved high levels of client satisfaction and has significantly expanded
client relationships as a result of demonstrated performance.
Pursue Complementary Strategic Alliance Agreements. The Company intends to
continue to seek appropriate strategic alliance agreements that extend the
Company's products and services, diversify its client base and raise its
visibility. Access Worldwide seeks alliances with companies with a history of
proven performance, experienced management and potential for growth.
Leverage Management Expertise and Corporate Infrastructure. The Company
believes it can achieve additional economies of scale, which could contribute
to improved financial performance. Each segment of the Company has a core
executive group in place with the experience to drive additional growth and
manage an expanding business.
Maintain Technological Leadership. The Company intends to continue to invest
in proprietary systems and technologies that it believes will provide
competitive advantages. The Company's technology strategy is driven by its
objective to maximize reliability, flexibility and integration.
Patents, Trademarks, Service Marks & Licenses
Access Worldwide has several existing or proposed service marks and
trademarks, as listed below:
AccessSports (Name and Design). A service mark application was filed with
the U.S. Patent and Trademark Office on November 1, 2000 for AccessSports, the
Company's direct mail program that combines
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information on clients' services or products with sporting schedules. The
application was assigned Serial No. 76/157,233 and placed in Class 35. The
Company is awaiting communication regarding the application within six months
of the filing date.
Access Worldwide (Name). A service mark application was filed with the U.S.
Patent and Trademark Office on April 7, 1999. The application was assigned
Serial No. 75/676,376. The examining attorney responded, indicating that the
Company's recitation of services on the original application was unacceptable.
The Company amended its application and filed its response with the U.S. Patent
and Trademark Office on March 23, 2000. On January 26, 2001, the U.S. Patent
and Trademark Office passed the application for opposition. If no objection is
indicated, the Company expects to receive a Certificate of Registration in due
course.
Access Worldwide (Design). A service mark application was filed with the
U.S. Patent and Trademark Office on April 7, 1999. The application was assigned
Serial No. 75/676,377. The examining attorney responded, indicating that the
Company's recitation of services on the original application was unacceptable.
The Company amended its application and filed its response with the U.S. Patent
and Trademark Office on March 23, 2000. On January 26, 2001, the U.S. Patent
and Trademark Office passed the application for opposition. If no objection is
indicated, the Company expects to receive a Certificate of Registration in due
course.
Access Worldwide Communications, Inc. (Name). A service mark application was
filed with the U.S. Patent and Trademark Office on April 7, 1999. The
application was assigned Serial No. 75/676,375. The examining attorney
responded, indicating that the Company's recitation of services on the original
application was unacceptable. The Company amended its application and filed its
response with the U.S. Patent and Trademark Office on March 23, 2000. On
January 26, 2001, the U.S. Patent and Trademark Office passed the application
for opposition. If no objection is indicated, the Company expects to receive a
Certificate of Registration in due course.
INSTOCK (Name and Design). A service mark application was filed with the
U.S. Patent and Trademark Office on November 1, 2000 for INSTOCK, Access
Worldwide's pharmacy stocking program. The application was assigned Serial No.
76/157,2325 and placed in Class 35. The Company is awaiting communication
regarding the application within six months of the filing date.
Government Regulations
The Company and several industries in which the Company's clients operate,
particularly the pharmaceutical, healthcare and telecommunications industries,
are subject to varying degrees of government regulation. Generally, compliance
with these regulations is the responsibility of the Company's clients. However,
the Company could be subject to a variety of government enforcement of private
actions from its failure to the failure of its clients to comply with such
regulations. These regulations are described in more details under "Risk
Factors." Access Worldwide is subject to extensive regulations and compliance
with these regulations can be costly, time consuming and subject the Company to
fines for noncompliance.
Competition
The outsourced marketing services industry in which the Company operates is
very competitive and highly fragmented. While many companies provide outsourced
marketing services, management believes that there is no single company that
dominates the entire industry.
Access Worldwide believes that it competes primarily on its ability to
deliver marketing, medical education, sales, research and customer support
services with excellence, speed and vitality. The Company strives to provide
premium solutions to client needs, working to make it irresponsible for them to
choose anyone else.
The Company competes against the in-house sales and marketing departments of
current and potential clients, large advertising agencies and national
consulting firms that offer healthcare consulting and medical
8
communications services, including boutique firms specializing in the
healthcare industry and the healthcare departments of large firms. Competition
could increase as a result of the expansion of the in-house marketing
capabilities by the Company's clients or by competitors' efforts to develop and
market new products and services.
The Company believes that its ability to provide both strategic and tactical
solutions, supported by systems and technology in compliance with complex
regulatory requirements, differentiates itself in the highly fragmented
marketing services industry. Competitive factors for the Company's services
include (1) previous experience, (2) medical and scientific experience in
specific therapeutic areas, (3) the quality of research, (4) speed to
completion, (5) the ability to organize and manage large-scale programs on a
national or global basis, (6) the ability to manage large and complex medical
databases, (7) the ability to provide statistical and regulatory services, (8)
the ability to interpret data and research, (9) the ability to integrate
information technology with systems and (10) financial viability and price.
Foward-Looking Statements
From time to time, including in this report, Access Worldwide may publish
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended. Those statements represent the Company's current
expectations, beliefs, future plans and strategies, anticipated events or
trends concerning matters that are not historical facts.
Such forward-looking statements include, among others,
. Statements regarding proposed activities pursuant to agreements with
clients;
. Future plans relating to growth strategy and business strategy; and
. Trends or proposals of clients or industries which the Company serves.
Such statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results to differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements include, but are not limited, to the following:
. Competition from other third-party providers and those of the Company's
clients and prospects who may decide to do the work that the Company
does in-house;
. Industry consolidation which reduces the number of clients that the
Company is able to serve;
. Potential consumer saturation reducing the need for the Company's
services;
. The need for management of any growth the Company may achieve;
. The Company's ability to launch new products or enter into strategic
alliance agreements on a timely basis or at all;
. Reliance on a limited number of major customers;
. The possible limited duration of significant agreements with clients;
. The Company's ability to refinance the current debts or comply with
current credit agreements; and
. Possible loss of Nasdaq SmallCap listing privileges.
Certain Factors that May Affect Future Operating Results.
In addition to other information set forth in this report, readers should
carefully consider the following risk factors in evaluating Access Worldwide
and its business.
9
Access Worldwide may be adversely impacted by competition, industry
consolidation and potential consumer saturation.
The industry in which the Company competes is highly competitive and
fragmented. The Company competes with other outsourced marketing services
companies, ranging in size from very small companies offering specialized
applications or short-term projects to large independent companies. In
addition, the Company's largest clients and many prospective clients have
significant internal marketing capabilities and also contract for these
services with competitors of the Company. The Company's direct marketing
services business is also subject to competition from technologically
sophisticated companies, and management anticipates that such competition will
intensify in the future. There can be no assurance that competitors will not
introduce products or services that would achieve greater market acceptance or
would be technologically superior to the Company's products or services.
Competitors and future competitors may have more extensive market research
capabilities, more extensive experience and greater financial resources than
the Company. There can be no assurance that the Company will be able to compete
successfully or that competitive pressures will not materially and adversely
affect the Company.
As a result of competitive pressures, factors such as quality of service,
responsiveness to client issues, reliability, flexibility, reputation and
record of timeliness are becoming increasingly important. A number of
competitors have capabilities and resources equal to or greater than the
Company's, and there can be no assurance that, as the Company's industry
continues to evolve, additional competitors with greater resources than those
of the Company will not enter the industry (or particular segments of the
industry) or that the Company's clients will not conduct more of their targeted
marketing services internally or through alternative marketing techniques.
Moreover, the effectiveness of marketing by telephone and other direct methods
could decrease as a result of consumer saturation and increased consumer
resistance to such marketing methods. There can be no assurance that the
Company will be able to anticipate and successfully respond in a timely manner
to any such potential decrease.
Access Worldwide has a need for growth management that if not executed
successfully could have an adverse effect on the Company.
The Company's continued growth depends significantly on Access Worldwide's
ability to utilize its existing infrastructure and databases to perform
services for new clients, as well as on the Company's ability to develop and
successfully implement new marketing methods or channels for new services for
existing clients. Continued growth will also depend on a number of other
factors, including, but not limited to, the Company's ability to maintain the
high quality of services it provides to customers, recruit, motivate and retain
qualified personnel, train existing sales representatives or recruit new sales
representatives to sell various categories of services, and open new service
facilities in a timely and cost-effective manner. The Company's continued
growth also will require the implementation of enhanced operational and
financial systems and resources, as well as additional management. Such growth,
if not managed effectively, could have a material adverse effect on the
Company.
Access Worldwide faces risks related to rapid expansion.
The Company intends to pursue a strategy of continued internal growth and
will seek to expand the range of its services and penetrate additional market
segments. The Company has a limited history in managing operations which are
geographically dispersed, coordinating national sales efforts and introducing
new services. The Company's proposed expansion will be dependent on, among
other things, the Company's ability to identify additional industry segments
with sufficient demand for the Company's services, hire and retain skilled
management, marketing, technical, customer service and other personnel, obtain
adequate capital, and improve administrative and operating systems. There can
be no assurance that the Company will be able to expand its operations or its
sales and marketing team which, if the Company were unable to do so, could have
a material adverse effect on the Company.
10
Access Worldwide's future growth is dependent on the trend toward outsourcing.
The Company's business and growth depends largely on the industry trends
toward outsourcing marketing services, particularly by pharmaceutical,
telecommunications and financial services companies. There can be no assurance
that any of these trends will continue, as companies may elect to perform such
services internally. A significant change in the direction of these trends,
particularly, a trend in such industries to cease or to reduce the use of
outsourced marketing services, such as those provided by the Company, could
have a material adverse effect on the Company.
Access Worldwide is heavily dependent on the industries it serves, particularly
the pharmaceutical industry.
The Company's business and future operations are dependent to a great extent
on the industries the Company serves, particularly the pharmaceutical industry.
Access Worldwide relies heavily on the pharmaceutical industry's ability to
create and launch new drugs and its continued reliance on outsourced marketing
companies like Access Worldwide. There can be no assurance that the
pharmaceutical industry will continue to launch new drugs or that it will rely
on entities such as Access Worldwide for outsourced marketing services. In
addition, even if the pharmaceutical industry continues to launch new drugs and
rely on outsourced marketing entities, there can be no assurance that the
Company's business will benefit from such trends. Access Worlwide also relies
heavily on pharmaceutical companies increasing their marketing budgets as to
which there can be no assurance. The pharmaceutical industry is heavily
regulated by federal and state authorities. Existing regulation, or increased
regulation in the future, could negatively impact the ability of the
pharmaceutical industry to operate or grow. Anything that inhibits the
operations or growth of the pharmaceutical industry could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
Access Worldwide may be affected by changes in a drug's lifecycle.
A substantial portion of Access Worldwide's contracts are with
pharmaceutical companies for medical education, sample fulfillment, product
stocking and detailing services. The Company may be negatively impacted if
contracts are delayed or cancelled as a result of new drugs not receiving Food
and Drug Administration approval or existing drugs being removed from the
market due to health or safety issues. Though the Company often has
cancellation clauses in its contracts to recoup any expenditures that were made
to support a program cancellation such cancellations could materially and
adversely affect the Company.
A delay or inability to create new product launches and service offerings may
affect Access Worldwide's future revenues.
Access Worldwide has and intends to continue to identify, develop and
provide new services and products. If the Company is unable to introduce new
innovative services, Access Worldwide could fail to obtain new clients and lose
current clients upon the termination of existing agreements.
Access Worldwide is subject to extensive regulations and compliance with these
regulations can be costly, time consuming and subject the Company to fines for
non-compliance.
Several industries in which Access Worldwide's clients operate are subject
to varying degrees of governmental regulation, particularly the pharmaceutical,
healthcare and telecommunications industries. Generally, compliance with these
regulations is the responsibility of the Company's clients. However, the
Company could be subject to a variety of enforcement or private actions for its
failure or the failure of its clients to comply with such regulations.
Pharmaceutical companies, in particular, and the healthcare industry, in
general, are subject to significant federal and state regulations. The
Company's handling and distribution of samples or pharmaceutical products are
subject to regulation by its clients, the Drug Enforcement Administration
(''DEA"), the Food and Drug
11
Administration ("FDA") and other applicable federal, state and local laws and
regulations, including the Prescription Drug Marketing Act ("PDMA"). The
healthcare industry implemented new regulations under the PDMA that went into
effect in December 2000 that impose stricter requirements in the areas of
storage, inventory control, lot number tracking and state license database
usage.
The Food, Drug and Cosmetics Act regulates the approval, labeling,
advertising, promotion, sale and distribution of drugs, which includes the
distribution of product samples to physicians. The FDA also regulates
promotional activities involving prescription drugs. There can be no assurance
that additional federal or state legislation or rules regulating the
pharmaceutical or healthcare industries will not be enacted. Any such new
legislation or rules could limit the scope of the Company's product sampling
services or significantly increase the cost of regulatory compliance.
Sample fulfillment requires licenses from all 50 states and compliance with
DEA and PDMA regulations and the capability to verify a doctor's medical
license and status. Each sample fulfillment center must be approved by the DEA
and FDA. Proposed federal regulations could impose fines of up to $500,000 for
each sample fulfillment that does not comply with the necessary regulations.
The Company must also comply with regulations established by professional
organizations such as the American Medical Association ("AMA"). The AMA has
established ethical guidelines, which govern receipts of gifts to physicians
from health-related organizations, and companies, including any items received
during peer-to-peer meetings and symposia sponsored by pharmaceutical
companies.
In addition, the AMA has the right to approve in advance the content and
distribution of any mailings or telecommunications performed by Access
Worldwide that use the AMA's database of physicians. The AMA also has the right
to conduct audits of the Company's operations for the purpose of determining
compliance with database contract regulations.
The Federal Communications Commission ("FCC") rules under the Federal
Telephone Consumer Act of 1991, that limits the hours which telemarketers may
call consumers and prohibits the use of automated telephone dialing equipment
to call certain telephone numbers. The Federal Telemarketing and Consumer Fraud
and Abuse Protection Act of 1994 ("TCFAPA") broadly authorizes the Federal
Trade Commission ("FTC") to issue regulations prohibiting misrepresentation in
telephone sales. In 1995, the FTC issued regulations under the TCFAPA, which,
among other things, require telemarketers to make certain disclosures when
soliciting sales. The Company believes its operating procedures comply with the
telephone solicitation rules of the FCC and FTC. However, there can be no
assurance that additional federal or state legislation, or changes in
regulatory implementation, would not limit the activities of the Company or its
clients in the future or significantly increase the cost of regulatory
compliance.
One of the significant regulations of the FCC applicable to long distance
carriers, prohibits the unauthorized switching of subscribers' long distance
carriers, known in the industry as "slamming." A fine of up to $100,000 may be
imposed by the FCC for each instance of slamming. In order to prevent these
unauthorized switches, federal law requires that switches authorized over the
telephone, such as through the Company's teleservices, be verified
contemporaneously by a third party. The Company believes its procedures comply
with this third party verification requirement.
Third party verification generally is not required for switches obtained in
person, such as those obtained by members of a direct field sales force. The
Company's training and other procedures are designed to prevent unauthorized
switching. However, as with any sales force, the Company cannot completely
ensure that each employee will always follow the Company's mandated procedures.
Accordingly, it is possible that employees in some instances engage in
unauthorized activities, including slamming. The Company investigates consumer
complaints reported to its telecommunications clients and reports the results
to such clients. To the Company's knowledge, no FCC complaint has been brought
against any of its clients as a result of the Company's services,
12
although the Company believes that the FCC is examining the sales activities of
long distance telecommunications providers, including the Company's clients,
and the activities of outside vendors, such as the Company, used by such
providers. If any complaints were brought, the Company's client might assert
that such complaints constituted a breach of its agreement with the Company
and, if material, seek to terminate the contract. Any termination by Sprint
would likely have an adverse material effect on the Company. If such complaints
resulted in fines being assessed against a client of the Company, the client
could seek to recover such fines from the Company.
Access Worldwide may be affected by client concentration and could be severely
impacted by the loss of any of the Company's largest clients.
The Company's three largest clients, AstraZeneca PLC, Pfizer Inc., and
Sprint Corp., accounted for approximately 49% of Access Worldwide's revenues in
2000. Although each of these clients has done business with the Company for at
least seven years, there can be no assurance that these clients will continue
to do business with the Company over the long-term, and the loss of any of
these clients could have a material adverse effect on the Company.
Access Worldwide could be affected by a loss of contracts.
The majority of the Company's contracts are short-term and cancelable on 90
days notice or less. Although the contracts typically require payment of
certain fees and, in some cases, a termination fee in the event the contract is
terminated, the loss of any of the Company's large contracts or the loss of
multiple contracts could have a material adverse effect on the Company.
Strategic alliances are important to Access Worldwide; Not all of them may
prove to be beneficial.
The Company's management believes that it is important to the future success
of the business that Access Worldwide enter into strategic alliances with
Internet companies and other entities that are compatible with an outsourced
marketing services company such as Access Worldwide. However, the Company's
management cannot assure stockholders that the Company will be able to enter
into such agreements as required by competitive or other market conditions on a
timely basis or at all. In addition, the Company may enter into alliances that
prove to be unprofitable or otherwise unhelpful to the Company's business or
prospects.
Access Worldwide relies on technology and could be adversely affected if the
Company is unable to maintain its facilities with the needed equipment.
The Company has invested significant funds in specialized telecommunications
and computer technologies and equipment to provide customized solutions to meet
its clients' needs. In addition, the Company has invested significantly in
sophisticated proprietary databases and software that enable it to market its
clients' products to targeted markets. The Company anticipates that it will be
necessary to continue to select, invest in and develop new and enhanced
technology and proprietary databases on a timely basis in the future in order
to maintain its competitiveness. The Company has made commitments to finance
its leased equipment and has expended substantial time and resources to train
its personnel in the operation of its existing equipment and to integrate the
operations of its systems and facilities. In the event of substantial
improvements in computer technologies and telecommunications equipment, the
Company may be required to acquire such new technologies and equipment at
significant cost and/or phase out a portion of its existing equipment. There
can be no assurance that the Company's technologies and equipment will not be
rendered obsolete or its services rendered less marketable or that the Company
will be able to acquire any needed improved technology or equipment on a timely
basis or at all.
Access Worldwide is dependent on key personnel.
The success of the Company depends in large part upon the abilities and
continued service of its key management personnel. Although the Company has
employment agreements with the executive officers that it
13
considers to be key to the Company's success, it cannot assure stockholders
that the Company will be able to retain the services of such key personnel, and
the failure of the Company to retain the services of all of its key personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, in order to support any
growth that the Company is able to effectuate, it will be required to recruit
and retain additional qualified management personnel. The Company's inability
to attract and retain such personnel could have a material adverse effect on
its business, financial condition and results of operations.
Access Worldwide is dependent on its labor force and could be affected by
potentially high turnover rates.
Many aspects of the Company's business are labor intensive with the
potential for high personnel turnover. The Company's operations typically
require specially trained persons, such as those employees who market services
and products in languages other than English and those employees with expertise
in the pharmaceutical detailing business. A higher turnover rate among the
Company's employees would increase the Company's recruiting and training costs
and decrease operating efficiencies and productivity. In addition, any growth
in the Company's business will require it to recruit and train qualified
personnel at an accelerated rate from time to time. There can be no assurance
that the Company will be able to continue to hire, train and retain a
sufficient labor force of qualified persons.
Access Worldwide could be affected by a business interruption.
The Company's business is highly dependent on its computer, software and
distribution systems and telephone equipment. The temporary or permanent loss
of such systems or equipment, through casualty or operating malfunction, or a
significant increase in the cost of telephone services that is not recoverable
through an increase in the price of the Company's services, could have a
material adverse effect on the Company. The Company's property and business
interruption insurance may not adequately compensate the Company for all losses
that it may incur in any such event.
Access Worldwide faces risks relating to its financing.
The Company's principal financing arrangements currently consist of
arrangements (the "Credit Facility") with Bank of America as lead lender from a
syndicate of financial institutions (the "Bank Group").
On April 3, 2001, the Company entered into the Fourth Amendment Agreement
and Waiver (the ''Fourth Amendment") to the Credit Facility and its amendments
with the Bank Group. The Fourth Amendment (a) provides that the Bank Group
waive the Acknowledged Events of Default and amends certain provisions, of the
Credit Facility and its accompanying amendments, including requiring the
Company to meet new financial covenants, (b) limits the revolving committed
amount of (i) $18.5 million through September 30, 2001; (ii) $18.2 million from
October 1, 2001 through October 31, 2001; (iii) $17.9 million from November 1,
2001 through November 30, 2001; (iv) $17.5 million from December 1, 2001
through December 30, 2001; and (v) $17 million from and after December 31,
2001, (c) requires monthly installments of the principal on the term loan of
$350,000 commencing on January 1, 2002 through December 31, 2002, with the
remaining outstanding balance due on January 2, 2003; (d) requires payment of
$3 million in principal due on March 31, 2002 which will pay down the term loan
until it is satisfied in full and thereafter to pay down the revolving credit
facility, (e) provides for the issuance of warrants in the amount of 12% of the
common equity if the Company does not pay-down at least 60% of the principal
under the Credit Facility by March 31, 2002, and (f) requires the Company to
hire an investment banking firm by May 15, 2001 to consider strategic
alternatives.
The Company cannot assure stockholders that it will be in a position to
repay such amounts by the required payment dates. If the Company is unable to
do so, then, unless it can refinance the Credit Facility on acceptable terms,
the business and financial condition would be materially and adversely
effected. The Company cannot assure stockholders that it will be able to obtain
any such refinancing on terms that are acceptable to the Company or at all.
14
Access Worldwide's stock price has declined substantially in the previous year
and may become more volatile.
The market price of Access Worldwide's common stock has fluctuated
significantly in the past and is likely to fluctuate significantly in the
future as well. The price has fallen from $2.50 per share on January 3, 2000 to
$0.625 per share on March 30, 2001.
Factors that may have a significant impact on the market price of the stock
include:
. Future announcements concerning Access Worldwide or its competitors;
. Results of technological innovations or service extensions;
. Government regulations; and
. Changes in general market conditions, particularly in the market for
SmallCap stocks.
Shortfalls in Access Worldwide's revenues or earnings in any given period
relative to any expectations in the securities markets could immediately,
significantly and adversely affect the trading price of the Company's common
stock.
The Company has experienced and may experience future quarter to quarter
fluctuations in its results of operations. Quarterly results of operations may
fluctuate as a result of a variety of factors, including, but not limited to,
the size and timing of client orders, changes in client budgets, material
variations in the cost of telephone services, the demand for the Company's
services, the timing of the introduction of new services and service
enhancements by the Company, the market acceptance of new services, competitive
conditions in the industry and general economic conditions. These factors,
either individually or in the aggregate, could result in decreasing revenues
and earnings, which could, in turn, materially and adversely affect the price
of the Company's common stock.
Access Worldwide may not continue to meet Nasdaq SmallCap listing requirements
and may be removed from the Nasdaq SmallCap Market.
All companies, including Access Worldwide, whose shares are listed on the
Nasdaq SmallCap Market must maintain certain minimum listing requirements (the
"Requirements"). At times and currently, Access Worldwide has not met one or
more of these Requirements. As a result, the Company could be required to cease
trading of its stock on the Nasdaq SmallCap Market. If the Company's shares
cease to trade on the Nasdaq SmallCap Market, the market price and liquidity of
the stock may decline.
Employees
As of December 31, 2000, the Company had approximately 1,300 employees. None
of the Company's employees are represented by a labor union and the Company is
not aware of any current activity to organize any of its employees. Management
considers relations between the Company and its employees to be good.
15
Item 2. Properties
Access Worldwide's principal executive offices are located in Boca Raton,
Florida. The Company has segment operations in California, Florida, New York,
New Jersey, and Virginia. The Company's leases have terms ranging from three to
ten years.
Approx.
Location Principal Use Square Feet
- -------- ------------- -----------
Boca Raton, FL Corporate Offices 5,000
Pharmaceutical Marketing Services Segment:
Boca Raton, FL Physician and Pharmacy Tel-detailing 22,200
Lincoln Park, NJ Ethical Drug Sample and Literature Fulfillment, Sales Force
Productivity Systems 110,220
Fairfield, NJ Ethical Drug Sample Fulfillment 40,000
Montville, NJ Ethical Drug Sample Fulfillment 112,500
New York, NY Medical Education Services 6,190
Consumer and Business Services Segment:
Arlington, VA Customer Sales and Service Programs 29,886
Boca Raton, FL Customer Sales and Service Programs 6,000
Arlington, VA Customer Sales and Service Programs 7,037
Strategic Market Research:
Los Altos, CA Market Research 3,284
Los Angeles, CA Market Research 1,396
16
PART II
Item 3. Legal Proceedings
From time to time, the Company is party to certain claims, suits and
complaints that arise in the ordinary course of business. Currently, there are
no such claims, suits or complaints, which, in the opinion of management, would
have a material adverse effect on the Company's financial position, results of
operations and cash flow.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended December 31, 2000.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
(a) Market Information
Prior to March 20, 2000, the Common Stock traded on the Nasdaq National
Market under the symbol ''CAWW.'' As of March 20, 2000, the Company began
trading on the Nasdaq SmallCap Market under the symbol "AWWC", and no longer
trades on the Nasdaq National Market. The following table sets forth the high
and low closing sale prices for the Company's common stock as reported by
Nasdaq for the periods indicated:
Market Prices
------------------------
2000 1999
----------- ------------
Fiscal Quarters High Low High Low
- --------------- ----- ----- ------ -----
First Quarter.... $3.94 $2.13 $10.50 $7.63
Second Quarter... 2.31 1.00 8.00 6.25
Third Quarter.... 1.69 1.03 5.63 1.75
Fourth Quarter... 1.63 0.50 3.06 1.25
(b) Holders
The number of record holders of common stock as of March 30, 2001 was
approximately 115 and the number of beneficial owners of common stock as of
March 30, 2001 was 1,999. The Company included individual participants in
security position listings in calculating the number of holders.
(c) Dividends
The Company has never paid cash dividends on its common stock and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
In addition, the terms of the Company's Credit Facility prohibit the payment of
cash dividends.
17
Item 6. Selected Financial Data
The selected statements of operations data for the quarters ended March 31,
June 30, September 30 and December 31, 2000 and 1999 have been derived from
unaudited Consolidated Financial Statements of the Company. The following
selected financial data should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto of the Company, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K.
Quarters Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
2000(1) 2000 2000 2000
-------- ------- ------------ -----------
(In Thousands Except for Per Share Data)
Statements of Operations Data:
Revenues.................................... $23,581 $24,730 $18,399 $20,603
Cost of revenues............................ 14,360 15,313 11,049 12,862
-------- ------- ------------ -----------
Gross profit................................ 9,221 9,417 7,350 7,741
Selling, general and administrative expenses 7,775 7,552 6,810 7,610
Amortization expense........................ 785 769 703 703
-------- ------- ------------ -----------
Income (loss) from operations............... 661 1,096 (163) (572)
Interest expense, net....................... 1,375 1,706 1,236 1,620
Other income................................ -- -- -- 230
(Loss) gain on sale of business (2)......... -- (7,864) 250 (138)
-------- ------- ------------ -----------
Loss before income taxes.................... (714) (8,474) (1,149) (2,100)
Tax (benefit) expense....................... (130) 207 430 (855)
-------- ------- ------------ -----------
Net loss.................................... $ (584) $(8,681) $(1,579) $(1,245)
======== ======= ============ ===========
Net loss per common share--basic............ $(0.06) $(0.89) $(0.16) $(0.13)
Net loss per common share--diluted (3)...... $(0.06) $(0.89) $(0.16) $(0.13)
Quarters Ended
---------------------------------------------
March 31, June 30, September 30, December 31,
1999(1) 1999 1999 1999
-------- ------- ------------ -----------
(In Thousands Except for Per Share Data)
Statements of Operations Data:
Revenues.................................................. $21,415 $20,694 $16,761 $22,317
Cost of revenues.......................................... 12,872 12,272 11,090 13,116
-------- ------- ------------ -----------
Gross profit.............................................. 8,543 8,422 5,671 9,201
Selling, general and administrative expenses.............. 7,083 7,047 7,393 7,585
Amortization expense...................................... 767 787 778 778
Unusual charge (4)........................................ -- 510 1,016 --
-------- ------- ------------ -----------
Income (loss) from operations............................. 693 78 (3,516) 838
Interest expense.......................................... 500 837 1,158 1,229
-------- ------- ------------ -----------
Income (loss) before income taxes......................... 193 (759) (4,674) (391)
Tax expense (benefit)..................................... 86 (339) (1,424) (116)
-------- ------- ------------ -----------
Income (loss) before extraordinary charge................. 107 (420) (3,250) (275)
Extraordinary charge on extinguishment of debt (net of tax
expense of $82)......................................... (102) -- -- --
-------- ------- ------------ -----------
Net income (loss)......................................... $ 5 $ (420) $(3,250) $ (275)
======== ======= ============ ===========
Net income (loss) per common share--basic................. $0.00 $(0.04) $(0.34) $(0.03)
Net income (loss) per common share--diluted (3)........... $0.00 $(0.04) $(0.34) $(0.03)
- --------
(1) In the fourth quarter of 2000, the Company implemented SAB No. 101, and as
a result reduced its revenues and cost of sales related to the licensing of
American Medical Association ("AMA") databases in the first quarters ended
March 31, 2000 and 1999 in the amount of $1,883,261 and $1,328,180,
respectively.
(2) On June 9, 2000, the Company sold the assets and business of its Plano,
Texas telemarketing call center, realizing a total net loss of $7.8
million, which included a $250,000 gain relating to an escrowed amount that
was returned to the Company in the third quarter of 2000.
(3) Since the effects of the stock options and earnout contingencies are
anti-dilutive for all four quarters in 2000 and for the quarters ended June
30, September 30, and December 31 1999, these effects have not been
included in the calculation of diluted EPS for 2000 and 1999.
(4) During the second and third quarters of 1999, the Company recorded an
unusual charge as part of its Corporate Plan to improve future performance.
18
The selected consolidated financial data set forth as of and for each of the
five years in the period ended December 31, 2000, have been derived from the
Company's Consolidated Financial Statements, which have been audited. The
following information contained in this table should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
Years Ended December 31,
---------------------------------------------------------
1996 1997(1) 1998(2)(3) 1999(3) 2000(3)
------- ------- --------- -------- --------
(In Thousands Except for Per Share Data)
Statements of Operations Data:
Revenues.............................................. $16,286 $36,653 $ 71,886 $ 81,187 $ 87,313
Cost of revenues...................................... 8,639 21,813 39,743 49,350 53,584
------- ------- --------- -------- --------
Gross profit.......................................... 7,647 14,840 32,143 31,837 33,729
Selling, general and administrative expenses.......... 7,754 8,909 21,432 29,108 29,747
Amortization expense.................................. -- 901 1,731 3,110 2,960
Unusual charge........................................ -- -- -- 1,526 --
------- ------- --------- -------- --------
(Loss) income from operations......................... (107) 5,030 8,980 (1,907) 1,022
Interest expense...................................... (101) (2,327) (911) (3,724) (5,937)
Other (expense) income................................ (200) (297) 4 -- 230
Loss on sale of business.............................. -- -- -- -- (7,752)
------- ------- --------- -------- --------
(Loss) income before income taxes..................... (408) 2,406 8,073 (5,631) (12,437)
Tax (benefit) expense (4)............................. (88) 1,181 3,552 (1,793) (348)
------- ------- --------- -------- --------
(Loss) income before extraordinary charge............. (320) 1,225 4,521 (3,838) (12,089)
Extraordinary charge on extinguishment of debt (net of
tax expense of $82)................................. -- -- -- (102) --
------- ------- --------- -------- --------
Net (loss) income..................................... $ (320) $ 1,225 $ 4,521 $ (3,940) $(12,089)
======= ======= ========= ======== ========
Net (loss) income per common share--basic............. $(0.07) $0.26 $0.52 $(0.42) $(1.25)
Net (loss) income per common share--diluted........... $(0.07)(5) $0.26 $0.51 $(0.42)(5) $(1.25)(5)
As of December 31,
---------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- --------- -------- --------
(In Thousands Except for Per Share Data)
Balance Sheet Data:
Current assets........................................ $16,963 $12,384 $ 23,914 $ 25,628 $ 24,752
Total assets.......................................... 29,454 52,680 104,422 109,524 92,980
Current liabilities................................... 16,757 17,336 21,944 17,160 17,051
Long-term debt, less current maturities............... 16,201 34,319 29,847 41,369 36,297
Mandatorily redeemable preferred stock................ 1,800 3,888 6,500 4,000 4,000
Common stockholders' (deficit) equity................. (5,304) (2,863) 46,130 46,695 35,253
- --------
(1) Effective November 1, 1997, the Company acquired the assets and liabilities
of Phoenix Marketing Group, Inc. in a transaction accounted for as a
purchase.
(2) Effective October 1, 1998, the Company acquired all of the outstanding
capital stock of AM Medica Communications Group in a transaction accounted
for as a purchase.
(3) In the fourth quarter of 2000, the Company implemented SAB No. 101, and as
a result reduced its revenues and cost of sales related to the licensing of
American Medical Association ("AMA") databases for the years ended December
31, 2000, 1999, and 1998 in the amount of $1,883,261, $1,328,180, and
$1,347,933, respectively.
(4) In December 1996, the Company became a "C" Corporation for income tax
purposes. Prior to that, the Company was an "S" Corporation.
(5) Since the effects of the stock options and earnout contingencies are
anti-dilutive for the years ended December 31, 2000, 1999 and 1996, these
effects have not been included in the calculation of diluted EPS for 2000,
1999 and 1996.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with Selected Financial
Data and the Company's Consolidated Financial Statements and the Notes thereto
included elsewhere in this Form 10-K.
Overview
Access Worldwide is an outsourced marketing services company that assists
clients in the pharmaceutical, telecommunications, financial services and
consumer products industries. The Company designs and delivers innovative,
data-driven sales and marketing solutions that strive to maximize clients'
sales and profits. The Company has particular expertise in reaching key
pharmaceutical audiences--physicians, pharmacists and patients--and targeted
consumer groups. Access Worldwide's resources include proprietary databases of
targeted consumers, physicians and pharmacists; strategic planning and market
research services; internet services; medical education; medical meetings
management; medical publications; inbound and outbound teleservices in 15
different languages; Electronic Territory Management Systems ("ETMS") and Drug
Enforcement Administration ("DEA") approved drug sample fulfillment and direct
mail capabilities.
Revenues
The Company provides a variety of services to a diverse client base. The
principal sources of revenue and manner of recognition are as follows:
. For medical education and meeting programs, the Company generally bills
and collects project fees over the life of the project including a
percentage of the total project cost at the execution of the work order.
Revenues are recognized on the percentage of completion method.
. For customized or non-standard database projects, the Company bills
either on a fixed fee or on a per item basis, and revenues are
recognized upon delivery of data to the client. Monthly or other
scheduled data services are billed and revenue is recognized on a
straightline basis over the life of the service.
. For sample fulfillment services, the Company bills on a per item basis
and recognizes revenue when services are rendered.
. The Company leases ETMS equipment to clients on a per salesperson basis.
Revenues are recognized either under an operating, or sales-type lease
methodology.
. For teleservices projects, the Company bills clients and recognizes
revenue on one of the following bases: production hours, completed
presentations, phone calls placed or received, sales made per hour or a
fixed monthly fee. Revenues are recognized as the services are performed
on a monthly basis.
. For market research projects, the Company generally bills and collects
fixed project fees in periodic installments over the life of the project
including a percentage of the total project costs at the execution of a
contract. Revenues are recognized on the percentage of completion
method.
Cost of Revenues
Cost of revenues consists of expenses specifically associated with client
service revenues. The cost of revenues includes salaries and benefits,
commissions paid to sales personnel, purchased services for clients,
warehousing facilities, shipping and packaging costs for sample fulfillment and
telephone charges.
Selling, General and Administrative
Selling, general and administrative expenses include staff functions such as
accounting, information technology and human resources, as well as expenses not
directly linked to client service revenues, such as depreciation, amortization
and rental expenses.
20
Results of Operations by Segment for 2000 and 1999
The following table sets forth, for the periods indicated, certain
statements of operations data by segment obtained from the Company's statements
of operations.
Pharmaceutical Consumer
----------------------------- -------------------------------------
2000 1999 Change 2000 1999 Change
------- ------- ------ ------- ------- -------
(in thousands)
Statements of Operations Data:
Revenues.................................... $53,806 $45,503 $8,303 $29,249 $31,427 $ (2,178)
Cost of revenues............................ 33,490 24,834 8,656 18,105 22,348 (4,243)
------- ------- ------ ------- ------- -------
Gross profit................................ 20,316 20,669 (353) 11,144 9,079 2,065
Selling, general and administrative expenses
(including unusual charge)................ 13,396 12,186 1,210 10,275 11,473 (1,198)
Amortization expense........................ 2,724 2,685 39 150 339 (189)
------- ------- ------ ------- ------- -------
Operating profit (loss)..................... $ 4,196 $ 5,798 $ (1,602) $ 719 $ (2,733) $ 3,452
======= ======= ====== ======= ======= =======
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues for the Company increased $6.1 million, or 7.5%, to $87.3 million
for 2000, compared to $81.2 million for 1999. Revenues for the Pharmaceutical
Segment increased $8.3 million, or 18.2%, to $53.8 million for 2000, compared
to $45.5 million for 1999. The increase is due to an increase in sample
fulfillment shipments for a major customer and an increase in medical education
meetings. Revenues for the Consumer Segment decreased $2.2 million, or 7%, to
$29.2 million for 2000, compared to $31.4 million for 1999. The decrease is
primarily due to a net decrease in billable hours for both new and existing
clients and a decrease in revenues as a result of the sale of the Plano, Texas
communications center in the second quarter of 2000.
Cost of revenues for the Company increased $4.3 million, or 8.7%, to $53.6
million for 2000, compared to $49.3 million in 1999. Cost of revenues as a
percentage of revenues for the Company decreased slightly to 61.4% for 2000
from 60.7% for 1999. Cost of revenues as a percentage of revenues for the
Pharmaceutical Segment increased to 62.3% for 2000 compared to 54.5% for 1999.
The increase is due to an increase in the percentage of international medical
education meetings, which were more costly to run, and an increase in labor and
occupancy costs incurred in conjunction with the opening of another warehouse
to support increased sample fulfillment business. Cost of revenues as a
percentage of revenues for the Consumer Segment decreased to 62% for 2000 from
71% for 1999. In 1999, the Company had higher personnel turnover, which caused
higher recruiting, training and temporary employee costs as compared to the
year 2000. Another contributor to the decrease was inefficiencies relating to
the expansion of the Consumer Segment in early 1999, which the Company believes
has subsequently been corrected.
Selling, general and administrative expenses (including unusual charge) for
the Company decreased $0.9 million, or 2.9%, to $29.7 million for 2000,
compared to $30.6 million for 1999. Selling, general and administrative
expenses (including unusual charge) as a percentage of revenues decreased to
34% for 2000, compared to 37.7% for 1999. Selling, general and administrative
expenses (including unusual charge) as a percentage of revenues for the
Pharmaceutical Segment decreased to 24.9% for 2000 compared to 26.8% for 1999.
The decrease is due to a reduction in bad debt expense resulting from contract
disputes in the prior year, as well as improved collection procedures
implemented during 2000. Selling, general and administrative expenses
(including unusual charge) as a percentage of revenues for the Consumer Segment
decreased to 35.3% for 2000, from 36.6% for 1999. The decrease is attributable
to the Company changing its focus in 1999 from Business-to-Consumer to
Business-to-Business, which is less costly. This was partially offset by a
decrease in revenues generated at the Company's Arlington, Virginia
teleservices location, while fixed costs remained constant at that facility.
During the second and third quarters of 1999, the Company recorded a one
time unusual charge in the amount of $1.5 million as part of its Corporate Plan
to improve future performance, which included $929,000
21
(which included $17,000 and $45,000 for the Pharmaceutical and Consumer
Segments, respectively) in severance costs, $248,000 in costs incurred due to
the Company's exploration of strategic alternatives, $200,000 in deferred
acquisition costs incurred on pending acquisitions which were no longer being
pursued, and $149,000 in costs associated with the negotiations relating to the
Credit Facility.
Amortization expense for the Company decreased $0.1 million, or 3.2%, to
$3.0 million for 2000, compared to $3.1 million for 1999. The decrease is
attributed to the sale of the Plano, Texas facility in 2000 that resulted in
the write-off of $10.7 million in goodwill related to that business.
Net interest expense for the Company increased $2.2 million, or 59.5%, to
$5.9 million for 2000 compared to $3.7 million for 1999. The increase is
attributed to the increased interest rate applicable to the Credit Facility and
resulting from an Amendment thereto.
The income tax benefit for the Company decreased to ($0.3) million in 2000,
from $(1.8) million in 1999, primarily as a result of the non-deductible
write-off of goodwill in conjunction with the sale of the Plano, Texas facility
during 2000. The effective tax rate decreased from 32% in 1999 to 3% in 2000.
Results of Operations by Segment for 1999 and 1998
The following table sets forth, for the periods indicated, certain
statements of operations data by segment obtained from the Company's statements
of operations.
Pharmaceutical Consumer
----------------------------- -------------------------------------
1999 1998 Change 1999 1998 Change
------- ------- ------ ------- ------- -------
(in thousands)
Statements of Operations Data:
Revenues...................................... $45,503 $38,399 $7,104 $31,427 $30,033 $ 1,394
Cost of revenues.............................. 24,834 20,568 4,266 22,348 17,654 4,694
------- ------- ------ ------- ------- -------
Gross profit.................................. 20,669 17,831 2,838 9,079 12,379 (3,300)
Selling, general and administrative (including
unusual charge)............................. 12,186 9,305 2,881 11,473 7,301 4,172
Amortization expense.......................... 2,685 1,309 1,376 339 339 --
------- ------- ------ ------- ------- -------
Operating profit (loss)....................... $ 5,798 $ 7,217 $ (1,419) $ (2,733) $ 4,739 $ (7,472)
======= ======= ====== ======= ======= =======
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues for the Company increased $9.3 million, or 12.9%, to $81.2 million
for 1999, compared to $71.9 million for 1998. Revenues for the Pharmaceutical
Segment increased $7.1 million, or 18.5%, to $45.5 million for 1999, compared
to $38.4 million for 1998. The increase in revenues for the Pharmaceutical
Segment is primarily the result of twelve months of revenues included in 1999
for AM Medica, which was acquired in 1998, as compared to three months in 1998.
The increase in revenues was partly offset by a decrease of $2.7 million in
revenues, which was caused by a non-recurring sale of computer equipment for $1
million in 1998, which did not occur in 1999. The remaining decrease was
attributed to a large client opening its own call center and performance issues
on certain client contracts, which have been resolved. Revenues for the
Consumer Segment increased $1.4 million, or 4.7%, to $31.4 million for 1999,
compared to $30.0 million for 1998. The increase in the Consumer Segment is
primarily the result of $4.2 million in new and expanded services revenue,
which was offset by a decrease of $2.8 million in revenues from a major client.
The decrease was attributable to an overall reduction in production hours
provided for the major client.
Cost of revenues for the Company increased $9.6 million, or 24.2%, to $49.3
million for 1999, compared to $39.7 million in 1998. Cost of revenues as a
percentage of revenues for the Company increased to 60.7% for 1999 from 55.2%
for 1998. Cost of revenues as a percentage of revenues for the Pharmaceutical
Segment increased to 54.5% for 1999 compared to 53.6% for 1998. The increase is
primarily attributed to tighter labor
22
markets, which resulted in higher labor costs. Cost of revenues as a percentage
of revenues for the Consumer Segment increased to 71% for 1999 from 59% for
1998. The increase was primarily attributed to the expansion of the Consumer
Segment, which occurred in the latter part of 1998 and into early 1999, in
Arlington, VA, Plano, TX and Boca Raton, FL. During the expansion, the Company
faced tight labor markets, which resulted in higher personnel turnover, higher
recruiting, training and overtime costs.
Selling, general and administrative expenses (including unusual charge) for
the Company increased $9.2 million, or 43%, to $30.6 million for 1999, compared
to $21.4 million for 1998. Selling, general and administrative expenses
(including unusual charge) as a percentage of revenues increased to 37.7% for
1999, compared to 29.8% for 1998. Selling, general and administrative expenses
(including unusual charge) as a percentage of revenues for the Pharmaceutical
Segment increased to 26.8% for 1999 compared to 24.2% for 1998. Excluding AM
Medica, which was acquired in 1998, selling, general and administrative
expenses (including unusual charge) as a percentage of revenues increased to
38.5% for 1999 compared to 30.7% for 1998. The increase was primarily
attributable to an increase in reserves for bad debts resulting from contract
disputes and an increase in headcount to support customer service, sales and
information technology. Selling, general and administrative expenses (including
unusual charge) as a percentage of revenues for the Consumer Segment increased
to 36.6% for 1999, from 24.3% for 1998. The increase was attributed to the
expansion of the Rosslyn, VA, Plano, TX, and Boca Raton, FL facilities, which
occurred in the latter part of 1998 and in early 1999 in anticipation of
business growth of the Consumer Segment. As a result, additional costs were
incurred for additional personnel, higher depreciation and leasing costs. In
addition, reserves for bad debts increased due to potential contract disputes
relating to the closing/realignment of the Boca Raton operations and Consumer
Segment expansion.
During the second and third quarters of 1999, the Company recorded an
unusual charge in the amount of $1.5 million as part of its Corporate Plan to
improve future performance. The Company recorded $929,000 (which included
$17,000 and $45,000 for the Pharmaceutical and Consumer Segments, respectively)
in severance costs, $248,000 in costs incurred due to the Company's exploration
of strategic alternatives, $200,000 in deferred acquisition costs incurred on
pending acquisitions which were no longer being pursued, and $149,000 in costs
associated with the negotiations of the Credit Facility.
Amortization expense for the Company increased $1.4 million, or 82.4%, to
$3.1 million for 1999, compared to $1.7 million for 1998. The increase was
primarily attributable to amortization of goodwill related to the acquisition
of AM Medica and the amortization of goodwill on payments of contingent
consideration earned in 1998.
Net interest expense for the Company increased $2.8 million, or 311%, to
$3.7 million for 1999 compared to $0.9 million for 1998. The increase was
primarily attributed to draws made on the Credit Facility to acquire AM Medica
in October 1998 and to make required payments of contingent consideration
earned in 1998. In addition, interest expense increased due to the Company's
default on three loan covenants contained in the Credit Facility agreement,
which was subsequently waived. As a result, the Company's interest rate
increased from 6.7% in June 1999 to 11% in the fourth quarter of 1999.
The income tax benefit for the Company was ($1.8) million in 1999, as
compared to an income tax expense of $3.6 million in 1998, primarily as a
result of pretax losses in 1999. The effective tax rate decreased from 44% in
1998 to 32% in 1999.
Liquidity and Capital Resources
At December 31, 2000, the Company had working capital of $7.7 million, a
decrease of $0.7 million or 8.3%, from $8.4 million at December 31, 1999. The
Company's primary sources of liquidity consist of cash and cash equivalents,
accounts receivable and availability under its Credit Facility. As of December
31, 2000, the Company had cash and cash equivalents of $1.9 million, compared
to $4.7 million as of December 31, 1999.
23
Net cash provided by operating activities in 2000 and 1999 was $4.4 million,
compared to $0.8 million, respectively. Excluding the loss on the sale of the
Plano, Texas call center of $7.8 million, there was a $3.4 million net cash
used in operating activities in 2000, compared to $0.8 million net cash
provided by operating activities in 1999. The decrease was primarily due to an
increase in accounts payable and accrued expenses of $3.4 million, offset by a
reduction in accrued interest and related party expenses of $0.6 million and an
increase in unbilled receivables of $1.1 million. The decrease in accrued
interest and other related party expenses was primarily due to contingent
payments earned in 1999, which were paid during 2000 with no similar obligation
in 2000 or 2001. Net cash provided by operating activities in 1999 and 1998 was
$0.8 million, compared to $6.2, respectively. The decrease in cash provided by
operating activities was primarily attributable to a decrease in accrued
interest and other related party expenses of $4.0 million as a result of
contingent payments earned in 1998, which were paid during 1999 and a decrease
in accounts receivable of $2.4 million. This was offset by an increase in
unbilled receivables of $1.0 million.
The Company's accounts receivable turnover averaged 72 days, 66 days and 70
days for the years ended December 31, 2000, 1999 and 1998, respectively.
Net cash provided by investing activities for 2000 was $2.2 million,
compared to net cash used in investing activities of $8.9 million in 1999. The
increase of $11.1 million cash provided by investing activities was
attributable to $4.8 million in net proceeds received from the sale of assets
of the Plano, Texas call center, a reduction in additions to property and
equipment of $1.9 million, and a $4.4 million reduction in additional purchase
price payments due to former owners of acquired businesses that were paid
during the first half of 1999. Net cash used in investing activities in 1999
was $8.9 million, compared to $42.6 million in 1998. The decrease was primarily
attributed to the acquisition of AM Medica in 1998 for approximately $33.2
million.
Net cash used in financing activities was $9.3 million in 2000, compared to
net cash provided by financing activities of $10.9 million in 1999. The
increase in cash used by financing activities in 2000 was primarily
attributable to net payments on the Credit Facility and related party debt of
$8.8 million in 2000. Net cash provided by financing activities was $10.9
million for 1999, compared to $36.2 million in 1998. Net cash provided by
financing activities consisted of draws totaling $19.4 million as a result of
draws made on the Credit Facility to finance payments of contingent
consideration earned in 1998 and to fund operations. This was offset primarily
by repayments made on related party notes of $0.9 million and the redemption of
25,000 shares of the Company's mandatorily redeemable preferred stock, Series
1998, at an aggregate price of $2.5 million. In addition, during 1998, the
proceeds received from the initial public offering were used to retire
long-term related party debt.
Credit Facility
On January 5, 2001, the Company notified the Bank Group under an
"Acknowledged Events of Default" that based on its unaudited financials it had
defaulted on five of its financial covenants under the Credit Facility as
amended. In addition, the Company submitted its proposed loan amendment
recommendation to the Bank Group for consideration.
Beginning on February 7, 2001, the Company entered into several Forbearance
Agreements with the Bank Group. Under the Forbearance Agreements, the Bank
Group agreed to forbear exercising their rights, to the extent and only to the
extent such rights arise exclusively as a result of the "Acknowledged Events of
Default," to stop making extensions of credit and to accelerate the full
outstanding balance on the Credit Facility. The latest Forbearance Agreement
expired on April 2, 2001.
On April 3, 2001, the Company entered into the Fourth Amendment Agreement
and Waiver (the "Fourth Amendment") to the Credit Facility and its amendments
with the Bank Group. The Fourth Amendment (a) provides that the Bank Group
waive the "Acknowledged Events of Default" and amends certain provisions,
including requiring the Company to meet new financial covenants, (b) allows the
revolving committed amount
24
of up to (i) $18.5 million through September 30, 2001; (ii) $18.2 million from
October 1, 2001 through October 31, 2001; (iii) $17.9 million from November 1,
2001 through November 30, 2001; (iv) $17.5 million from December 1, 2001
through December 30, 2001; and (v) $17 million from and after December 31,
2001, (c) requires monthly installments of the principal on the term loan of
$350,000 commencing on January 1, 2002 through December 31, 2002, with the
remaining outstanding balance due on the Credit Facility on January 2, 2003;
(d) requires payment of $3 million in principal due on March 31, 2002 to be
applied to (i) first the term loan and then the revolving credit facility, (e)
provides for the issuance of warrants in the amount of 12% of the common
equity, if the Company does not pay-down at least 60% of the principal under
the Credit Facility by March 31, 2002, and (f) requires the Company to hire an
investment banking firm by May 15, 2001 to consider strategic alternatives.
The Company believes that its cash and cash equivalents, as well as the cash
provided by operations and its availability on its Credit Facility, will be
sufficient to fund its current operations, planned capital expenditures and
anticipated growth of the existing business over the next 12 months. Any
significant acquisition that the Company may undertake would require additional
financing. There can be no assurance that the Company will be able to obtain
such financing on terms acceptable, or at all.
In addition, management believes it will be able to make the scheduled
principal payments commencing in 2002 with cash flow from operations and the
Credit Facility with the exception of the $3 million principal payment due on
March 31, 2002. Management believes that only a portion of this principal
payment will be funded from cash flow from operations. Although management has
not identified a specific source of funding for the remaining amount,
management believes that its 2000 performance and its renegotiated Credit
Facility, places the Company in a good position to obtain funding.
For the year ended December 31, 2000, the Company had same store growth in
revenues and EBITDA of 14.4% and 89%, respectively. In addition, the Company
reduced its debt by $8.8 million, while making all scheduled payments on time,
signed a variety of new strategic alliances, handled record levels of sample
fulfillment shipments, continued to reduce selling general and administrative
expenses and reinvested in the Company's infrastructure for continued growth.
Under the Fourth Amendment, the Company will hire an investment banking firm
by May 15, 2001 to assist in exploring strategic alternatives including funding
for the $3 million payment due on March 31, 2002.
Based on these factors, management believes that it should be able to obtain
funding to make the $3 million payment due on March, 30, 3000.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company is subject to interest rate risk on its Credit Facility for changes in
the fair value of its debt caused by changes in interest rates. The Company's
Credit Facility is currently at an interest rate of prime plus 3%. A 1% change
in prime interest rates would result in a pretax impact on earnings of
approximately $0.3 million.
Item 8. Financial Statements and Supplementary Data
Access Worldwide's Consolidated Financial Statements and the Notes thereto,
together with the report thereon of PricewaterhouseCoopers LLP dated March 2,
2001, except for Notes 2 and 9, which are as of April 3, 2001, are filed as
part of this report.
25
Index to Financial Statements
Page
----
Report of Independent Certified Public Accountants............... 27
Consolidated Balance Sheets...................................... 28
Consolidated Statements of Operations............................ 29
Consolidated Statements of Changes in Common Stockholders' Equity 30
Consolidated Statements of Cash Flows............................ 31
Notes to Consolidated Financial Statements....................... 32
26
Report of Independent Certified Public Accountants
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ACCESS WORLDWIDE COMMUNICATIONS, INC.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 49 present fairly, in all material
respects, the financial position of Access Worldwide Communications, Inc. and
its subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)(2) on page 49
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Notes 2 and 9, the Company has renegotiated its revolving
credit and term loan facility with the Bank Group subsequent to year-end. As a
result of the terms of the amended revolving credit and term loan facility, the
Company is required to commence making monthly principal payments on the term
loan in 2002. In addition, the Company is required to make a $3 million
principal payment on March 31, 2002 on the term loan for which the Company's
management believes that a portion of such payment will require cash from
sources other than operations. The Company is required, under the amended
revolving credit and term loan facility, to hire an investment banker to assist
in evaluating strategic alternatives and other financing sources. In addition,
the amended credit and term loan facility contains certain debt covenants, as
described in Note 9, that become increasingly more restrictive in 2001 and
2002. While management believes that the Company will be able to maintain
compliance with such covenants during 2001, failure to achieve its revenue and
income projections in its diverse business operations or the loss of a key
customer (Note 7) could result in the Company not being able to maintain
compliance with such covenants. Such non-compliance would result in an event of
default, which if not waived by the lenders, would result in the acceleration
of the amounts due under the revolving credit and term loan facility.
PricewaterhouseCoopers LLP
Ft. Lauderdale, FL
March 2, 2001, except as to Notes 2 and 9,
which are as of April 3, 2001
27
ACCESS WORLDWIDE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.......................................................................... $ 1,926,140 $ 4,706,380
Accounts receivable, net of allowance for doubtful accounts of
$128,588, and $113,082, respectively.............................................................. 16,080,028 15,940,988
Unbilled receivables............................................................................... 4,065,750 2,954,899
Other assets, net.................................................................................. 2,680,179 2,026,216
------------ ------------
Total current assets.............................................................................. 24,752,097 25,628,483
Property and equipment, net........................................................................ 10,517,295 11,435,983
Other assets, net.................................................................................. 637,572 941,291
Intangible assets, net............................................................................. 57,073,434 71,518,273
------------ ------------
Total assets...................................................................................... $ 92,980,398 $109,524,030
============ ============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of indebtedness.................................................................... $ 34,347 $ 3,028,873
Current portion of indebtedness--related parties................................................... 1,369,520 1,990,000
Accounts payable and accrued expenses.............................................................. 9,867,226 6,461,633
Accrued interest and other related party expenses.................................................. 46,084 1,296,672
Accrued salaries, wages and related benefits....................................................... 2,823,997 2,046,665
Deferred revenue................................................................................... 2,910,072 2,335,705
------------ ------------
Total current liabilities......................................................................... 17,051,246 17,159,548
Long-term portion of indebtedness.................................................................. 33,029,154 37,566,384
Long-term portion of indebtedness--related parties................................................. 3,267,371 3,802,334
Other long-term liabilities........................................................................ 379,671 301,237
Mandatorily redeemable preferred stock, $.01 par value: 2,000,000 shares authorized, 40,000 shares
issued and outstanding............................................................................ 4,000,000 4,000,000
------------ ------------
Total liabilities and mandatorily redeemable preferred stock...................................... 57,727,442 62,829,503
------------ ------------
Commitments and contingencies
Common stockholders' equity:
Common stock, $.01 par value: voting: 20,000,000 shares
authorized; 9,740,001 and 9,528,478 shares issued and outstanding at December 31, 2000
and 1999, respectively............................................................................ 97,400 95,285
Additional paid-in capital......................................................................... 63,577,509 62,932,033
Accumulated deficit................................................................................ (28,421,953) (16,332,791)
------------ ------------
Total common stockholders' equity................................................................. 35,252,956 46,694,527
------------ ------------
Total liabilities, mandatorily redeemable preferred stock and common stockholders' equity......... $ 92,980,398 $109,524,030
============ ============
The accompanying notes are an integral part of these financial statements.
28
ACCESS WORLDWIDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2000 1999 1998
------------ ----------- -----------
Revenues.......................................................... $ 87,312,992 $81,186,934 $71,886,352
Cost of revenues (exclusive of depreciation)...................... 53,583,938 49,349,561 39,743,380
------------ ----------- -----------
Gross profit..................................................... 33,729,054 31,837,373 32,142,972
Selling, general and a